Fiscal and Social Policy: Financing Long-Term Care in Germany

Abstract

This paper deals with the coverage of long-term care (LTC) in Germany since the post-war period. Until the 1990s, long-term care was mainly a task of the family with means-tested, tax-financed care assistance as a last resort. In 1994, after two decades of political debate, the German parliament approved the LTC Insurance Act. This path-breaking reform act introduced a two-tiered, mandatory long-term care insurance (LTCI) for virtually the entire German population. We will capture the genesis of the so-called fifth pillar of the social security system from the initial stage of problem recognition to the agenda-setting period and the decisive implementation phase. We also shed light on recent reforms of the original LTCI Act. We argue that the introduction of the LTCI can be explained as an interplay between fiscal and social policy. In order to mask their financial interests, municipalities and charities acted as advocates for the elderly in need of LTC and their families. Summarizing the effects of the LTCI and comparing them with the initial estimations and targets, we identify unresolved issues and further need for reform. Even today’s reform debates, however, can be understood as deriving from the tension between fiscal and social policy, but overshadowed by a revival of ideological debates over private vs. public provision.

Keywords: LTC policy, elderly care, new social risk, Germany, social insurance, welfare, reform

JEL Classification: G22, H53, H55, H72, I3, I31, I38, J1, J11, J14, J16